Xerox 2006 Annual Report Download - page 23

Revenue
Approximately 28% of our
revenue comes from equipment
sales, from either lease
arrangements that qualify as
sales for accounting purposes,
or outright cash sales.
Revenue Stream
The remaining 72% of our
revenue, “Post sale and
financing,” includes annuity-
based revenue from maintenance,
services, supplies, and financing,
as well as revenue from rentals
or operating lease arrangements.
28% 72%
We sell most of our products and services under
bundled lease arrangements, in which our customers pay a
monthly amount for the equipment, maintenance,
services, supplies and financing over the course of the
lease agreement. These arrangements are beneficial to our
customers and us since, in addition to customers receiving
a bundled offering, these arrangements allow us to
maintain the customer relationship for future sales of
equipment and services.
Research and Development
R&D Sustaining Engineering
R, D&E Expenses
(in millions)
1000
800
600
400
200
0
$922
$161
$761
2006
$943
$188
$755
2005
$914
$154
$760
2004
Investment in R&D is critical for competitiveness in
Xerox’s fast paced markets where more than two-thirds of
our equipment sales are from products launched during
the past two years.
We are required, for accounting purposes, to analyze
these arrangements to determine whether the equipment
component meets certain accounting requirements so that
the equipment should be recorded as a sale at lease
inception, that is, a sales-type lease. Under a sales-type
lease we are required to allocate a portion of the monthly
minimum payments attributable to the fair value of the
equipment to equipment sales. We allocate the remaining
portion of the monthly minimum payments to the various
remaining elements based on fair value – service,
maintenance, supplies and financing – that we generally
recognize over the term of the lease agreement, and that
we report as “post sale and other revenue” and “finance
income” revenue. In those arrangements that do not
qualify as sales-type leases, which have increased as a
result of our services-led strategy, we recognize the entire
monthly payment over the term of the lease agreement,
whether rental or operating lease, and report it in “post
sale and other revenue.” Our accounting policies for
revenue recognition for leases and bundled arrangements
are included in Note 1 – Summary of Significant
Accounting Policies to the Consolidated Financial
Statements in our 2006 Annual Report.
Xerox’s R&D drives innovation and customer value
by:
–Creating new differentiated products and services.
–Enabling cost competitiveness through disruptive
products and services.
–Enabling new ways to serve customers.
–Creating new business opportunities to drive future
growth by reaching out to new customers.
To ensure our success, we have aligned our R&D
investment portfolio with our strategic planks: leading the
color transition, enabling the “New Business of Printing”,
and enhancing customer value through services. 2006
R&D spending focused primarily on the development of
high-end business applications to drive the “New
Business of Printing”, on extending our color capabilities,
and on lower-cost platforms and customer productivity
enablers that drive the digitization of the office. The
Xerox iGen3, an advanced next-generation digital
printing press that produces photographic-quality prints
indistinguishable from offset, and Xerox’s proprietary
Solid Ink technology for the office are examples of the
type of breakthrough technology we developed and that
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